Fitch Rates NH Municipal Bond Bank Series 2003 A & B 'AAA'.

Business Editors

NEW YORK--(BUSINESS WIRE)--May 6, 2003

Fitch Ratings assigns a 'AAA' rating to approximately $31.2 million New Hampshire Municipal Bond Bank 2003 series A refunding bonds, and affirms the 'AAA' rating on approximately $609.3 million of outstanding non-guaranteed bonds. Fitch also assigns a 'AAA' rating to approximately $36.7 million New Hampshire Municipal Bond Bank 2003 series B refunding bonds (State Guaranteed Municipal Bonds Issue), and to $77.9 million of outstanding state guaranteed bonds. The bonds will be sold the week of May 5, 2003, through negotiation led by A.G. Edwards & Sons, Inc. Proceeds of the series 2003 A bonds will be used to refund the series 1993 A and 1993 E bonds issued under the general resolution for an estimated present value savings of $2.6 million. Proceeds of the series 2003 B bonds will be used to refund the series 1993 B, E, and F bonds issued under the state guaranteed resolution for an estimated present value savings of $2.5 million.

Background: The New Hampshire Municipal Bond Bank is an independent political subdivision of the state, established in 1977. The bond bank issues bonds and uses the proceeds to make loans to local government borrowers throughout the state. Most of New Hampshire's eligible municipalities use the bond bank as their primary borrowing vehicle, because it offers local government borrowers the lowest cost of capital. The bond bank is administered by a five-member board consisting of the state treasurer, who is a director ex officio, and four directors appointed by the governor and council. A three-person staff provides financial advice and technical assistance to borrowers, including assistance with the loan application process and project review for compliance with state law and federal tax regulations.

The bond bank can issue bonds under two separate resolutions: (1) the general resolution and (2) the state guaranteed resolution. Bonds issued under both resolutions are general obligations of the bank. However, reserve funds can only be used to cure defaults under the resolution for which they were established. Both resolutions contain nearly identical bondholder security, except that all municipal bonds purchased with the proceeds of bonds issued by the bank under the state guaranteed resolution are backed by the full faith and credit of the State of New Hampshire. In addition, bonds can only be issued under the state guarantee resolution for sewer projects, landfill remediation, and for school districts. The New Hampshire constitution limits the guarantee of sewer, landfill, and school bonds issued by municipalities and purchased by the bank to $250 million, $30 million, and $95 million respectively. No bonds have been issued under the state guaranteed resolution since 1998.

Well Diversified and Low Risk Loan Portfolio: Under the general resolution, the bond bank has loans outstanding to 213 borrowers from various cities, towns, counties, school districts, and other local government units throughout the state. All loans are backed by the borrowers' general obligation pledge. The bond bank pool is naturally diversified, with the largest borrower, the City of Dover, accounting for only 5.5% of the total outstanding loan balance. The top ten borrowers account for 38.9% of the total outstanding loan balance. Just under half of the loans outstanding are to school districts. Loan payments are due five days before the bond payment dates. The bond bank would charge borrowers 12% interest if a payment were late. Loans may not be refinanced, although the bond bank may issue refunding bonds and pass on interest savings to the local borrowers.

Under the state guaranteed resolution the bond bank has loans outstanding to 74 borrowers from various cities, towns, counties, school districts, and other local government units throughout the state. All loans are backed by the borrowers' general obligation pledge and the full faith and credit of the State of New Hampshire, currently rated 'AA+' by Fitch. The pool is somewhat less diversified than the general resolution pool, with the largest borrower, the City of Portsmouth, accounting for 14.5% of the total outstanding loan balance. The top ten borrowers account for 68.6% of the total outstanding loan balance. Approximately 23% of the loans outstanding are to school districts. Late fee and refinancing provisions are the same as those under the general resolution.

Strong Reserves: General resolution bonds are secured by loan repayments. A reserve for all parity debt, funded by bond proceeds at 100% of maximum annual debt service, is available to make up shortfalls that could potentially occur due to any missed repayments. As of June 30, 2002, reserves available for loan defaults equaled $83.2 million. Including the bond funded reserve for series 2002 C and E general resolution bonds, which were not available at the time the audited financial statements were completed, total funds available to cover defaults will be approximately $87.1 million, or 13.7% of bonds outstanding. State guaranteed bonds have the same reserve fund requirement as general resolution bonds. As of June 30, 2002, reserves available for loan defaults under the state guaranteed resolution equaled $20.0 million, or 25.7% of bonds outstanding.

Additional State Support: Additional credit enhancement for both general and state guaranteed resolution bonds is provided by a state intercept, whereby in the event a borrower defaults on a loan repayment, the bond bank has the ability to intercept any state funds payable to the borrower. An additional layer of credit enhancement is a provision, albeit not a legal requirement, by the state to replenish the debt service reserve funds under both resolutions if either falls below its minimum specified level. Neither the intercept nor the debt service reserve make-up provision has ever been utilized because no borrower has defaulted on a repayment since the bond bank began operations in 1977.

High Tolerance to Loan Defaults: Fitch analyzed the default tolerance of the general and state guaranteed resolution loan pools using a stress test it also applies to state revolving funds and other municipal loan pools. The stress test considers loan quality, single risk concentration, reserve fund size, and debt service requirements. The bond bank's reserve funds are sufficient to pay bonds even if scheduled loan repayments under the general and state guaranteed resolutions fall short by as much as 23.3% and 27.6% respectively, for four consecutive years and no action is taken by the state to replenish the reserve funds. Loan repayment shortfalls this severe are in excess of what Fitch would expect to occur in a 'AAA' stress scenario, given the quality of the bond bank's general and state guaranteed loan pools.